The digital revolution is well underway, offering every industry new tools to perform more efficiently, more accurately, and more effectively. Fintech, or “financial technology”, is one of the fastest growing areas of software development.
Entrepreneurs are challenging traditional methods of delivering and using a wide variety of financial services. In many cases, this is achieved through automation of labor-intensive processes that were once completed manually.
The startups bringing fintech advances to market were first viewed as competitors by major financial institutions. Today, the biggest banks are getting in line to snap up the latest innovations – and investors are carefully examining their options for buying into the next major fintech solution.
BlackLine has made many analysts’ top fintech pick lists for its groundbreaking SaaS (Software-as-a-Service) accounting solutions.
What Does BlackLine Do?
BlackLine [NASDAQ: BL] jumped into the fintech space relatively recently, but its unique software has been well-received. It appeals to an underserved niche that was already eager for automation of transactional tasks.
The company’s cloud-based software is dedicated to the work of financial reporting, and it is designed to simplify and automate accounting processes like account reconciliation, the financial close, controls assurance, and intercompany accounting.
One of the biggest benefits of adopting BlackLine’s platform is that it updates records continuously.
That means there is no need to wait until the end of the month, quarter, or year for an update on the user’s financial status.
Business leaders gain access to real-time financial information, which creates opportunities to adjust strategies and improve efficiency right away. BlackLine [NASDAQ: BL] has coined the phrase “continuous accounting” to describe this new method of record-keeping and financial analysis.
Is BlackLine Stock A Buy?
BlackLine [NASDAQ: BL] was the first company in this space, and it has a well-established leadership position in the market.
Its leaders are currently focused on growth strategies in an effort to capture more of the estimated $17 billion total addressable market.
Analysts have determined that there are more than 165,000 potential customers for BlackLine software, and it could eventually touch a a large portion of the world’s 13 million accounting and finance professionals.
Though organizations of all sizes have managed their accounting and financial reporting processes without specialized software until now, investors seem confident that it won’t be long before platforms like BlackLine’s are no longer optional.
The process of gathering, recording, and reporting financial details is extraordinarily time-consuming, and manual methods leave room for error.
At best, inaccurate financial information damages a company’s ability to design and implement effective strategic planning. At worst, failure to accurately calculate and report financial data has serious legal and regulatory consequences, particularly for publicly-traded companies.
There is a lot to love about BlackLine’s approach to software design. For example, it doesn’t require dramatic changes to existing financial and accounting infrastructure, because it integrates seamlessly with standard enterprise infrastructure.
Better still, BlackLine continues to develop new features and upgrades to its technology, creating opportunities to expand relationships with existing users – and increasing the likelihood that current customers will renew.
That number is set to grow dramatically, now that SAP will sell BlackLine software directly. In the fourth quarter of 2018, revenue grew 29%, bringing the year’s total revenue to about $228 million.
If the market is, in fact, around $17 billion, BlackLine growth promises to explode in coming years. For many investors, that makes this stock a solid buy.
Risks of Buying BlackLine Stock?
Despite its promising future, there are several disadvantages to consider before purchasing BlackLine stock. One of the biggest is the fact that despite strong sales growth, earnings are still in the negative.
This isn’t uncommon for newer companies primarily focused on growth, but it can be a drawback for investors interested in current income and short-term gains.
Another concern of purchasing BlackLine shares is a growing sentiment among analysts that the current stock price is inflated. Share prices rose in response to predictions of future success, but that success has not yet been realized. Those who purchase now risk paying a premium.
This point in particular has caused the share to be downgraded by some firms. For example, Raymond James downgraded Blackline shares from outperform to market perform in January 2019, and Zacks Investment Research moved BlackLine from buy to hold in February 2019.
Nonetheless, the consensus remains at buy, and the consensus target share price comes in at $50.40.
Once 2018’s 4th quarter and year-end figures were made public, both Goldman Sachs Group [NYSE: GS] and KeyCorp [NYSE: KEY] reaffirmed their buy ratings, setting target share prices of $53 and $56 respectively.
BlackLine faces the same challenges and risks as its peers in the fintech space, but it has several significant advantages. It offers a strong niche product that is in high demand, and it has very few competitors. All signs point to long-term success for BlackLine, which is good news for investors able to pursue a buy-and-hold strategy.